On Thursday, Treasury Secretary Janet L. Yellen initiated special accounting tools to prolong the government’s ability to borrow money, while the federal debt bumped into a $31.4 trillion statutory limit.
The administrative maneuvers initiated by Treasury suspend investments in multiple government accounts, temporarily reducing the amount of debt below the borrowing ceiling and preventing additional debt from being added.
This in effect allows “headroom” for Treasury to borrow hundreds of billions of dollars more which, joined with tax revenue, will be used to make payments to bondholders, pay Social Security benefits, cover the costs of government agencies and programs.
The accounting tools Yellen put in place Thursday are part of a “debt issuance suspension period” set to last through June 5th, although it isn’t officially clear how long Congress would have until they need to act.
The first series of extraordinary measures include redeeming existing, and suspending new, investments in the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund.
The Civil Service Retirement and Disability Fund provides a pension to retired and disabled federal employees who are covered by the civil service retirement system. The Postal Service Retiree Health Benefits Fund assists in paying for the cost of health insurance of retired postal workers.
By issuing a debt issuance suspension period, the agency is permitted to suspend the investment of contributions to the retirement and disability fund from federal employees and agencies. This also includes interest payments on securities held by the fund and the proceeds of maturing securities. Investments in the postal fund are suspended in the same way.
After the debt limit is raised, Treasury restores the various funds’ investments. “Federal employees and retirees will be unaffected by these actions,” Yellen wrote.
Treasury is hoping that early redemptions of existing investments and suspending new investments of the federal employee and postal worker funds will free up around $19 billion per month under the debt limit.
Currently, Treasury has paused on suspending reinvestment in the Government Securities Investment Fund, known as the “G Fund,” in the Federal Employees Retirement System, Thrift Savings Plan. However, Yellen stated last week that could change as soon as the end of the month.
The G Fund is one of the options available to federal employees who have part of their paycheck withheld, as well as contributions from federal agencies, in a tax-deferred retirement and investment plan similar to 401(k) accounts in the private sector. By suspending daily reinvestment of the fund in special Treasury securities, the government intends to free up around $270 billion in order to continue borrowing and also remain under the cap.
In her letter last week, Yellen said it’s “critical that Congress act in a timely manner to increase or suspend the debt limit.” Failing to meet the government’s obligations, she said, “would cause irreparable harm to the U.S. economy, the livelihoods of all Americans, and global financial stability.”